HSBC came under pressure to let Household, its American sub-prime bank, go bankrupt yesterday, in order to avoid an expensive rights issue or government bailout. The proposal was dismissed by HSBC. Knight Vinke, the activist investor, told The Times last night that HSBC should refuse to pay the bondholders that fund Household’s business, which it estimated would save the bank an estimated $35 billion. (£23.6 billion). Here is the complete article.
Mr Knight said that HSBC was too focused on its reputation. Others wondered if HSBC thought about reputation before buying Household International.
A source close to the company said: “If HSBC did this they would be counting themselves out of any future big US bond issue. And they would probably have their US banking license revoked.” Household has 40 million customers.
Now that we know of 40 million customers we also know how HSBC is generating some profit. Once a month HSBC could tell one percent of customers that their payments are late, even if they aren’t. 400,000 multiplied by $29 is a false profit of $11.6 million per month. At $39 each HSBC makes $15.6 million per month.
This is how HSBC can easily raise $15.6 million easily, every month. Will it add to what the bank needs? Of course not, because HSBC is already doing this now, and it is not enough. Maybe the fine will be even bigger when they are caught. I’ll toss the idea to Tom Detelich. I’m sure he has the answer.
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